Nexstar Media Group Inc (NXST) 2014 Q2 法說會逐字稿

Good day and welcome to the Nexstar Broadcasting Group's 2014 second-quarter conference call.

Today's call is being recorded.

All statements and comments made by management during this conference other than statements of historical fact may be deemed forward-looking statements within the meaning of section 21 of the Securities Act of 1933 and section 21-A of the Securities and Exchange Act of 1934.

The company's future financial conditions and results of operations as well as forward-looking statements are subject to change. The forward-looking statements and comments made during the conference call are made only as of the date of today's conference call. Management will also be discussing non-GAAP information during this call.

In compliance with regulation G, reconciliations of this non-GAAP information to GAAP measurements are included in today's announcement. The company does not undertake any obligation to update forward-looking statements reflective of changes in circumstances.

At this time, I would like to turn the conference over to your host, Nexstar President and CEO, Perry Sook. Please go ahead, sir.

Thank you, Aaron. Good morning, everyone.

I'd like to thank you all for joining us this morning to review Nexstar's record second-quarter financial results as well as discuss our initiatives during the period to support our goals for driving record free cash flow levels for the balance of 2014 and beyond. As always, Tom Carter, our Chief Financial Officer will participate in the call with me this morning. As outlined in our release earlier this morning, Nexstar delivered another period of record results highlighted by solid growth across all revenue sources and financial metrics.

Year-to-date financial results are pacing in line with our expectations and we expect Nexstar to generate record free cash flow in 2014 based on advertising trends and rising political spending in the second half of the year, as well as contractual retransmission revenue growth and our ever expanding digital media operations. During the second quarter, Nexstar remained active in executing our long-term strategy to complete accretive transactions that build our operating and revenue base to further drive our free cash flow growth.

In this regard, we completed the acquisition of five television stations in two markets for $33.5 million which follows the completion in the first quarter of the acquisition of three stations in three markets. Later this year we expect to close on our announced and pending transactions, which will result in the net addition of 27 stations and 10 markets to our portfolio.

In addition, we continue to expand and diversify our digital media operations and capabilities with the acquisition in the second quarter of cloud-based content management solutions provider, Enterprise Technology Group, which follows our Q1 accretive acquisition of Internet Broadcasting Systems. As many of you know, the FCC has routinely advanced proposals for the incubation of broadcast station ownership by minority owned companies.

Reflecting our role as an industry leader and innovator, as well as our organized organization wide commitment to serving the local markets in which we operate, during the second quarter we initiated an innovative transaction that, contingent upon FCC approval, will expand the ownership of broadcast assets among minority operators for the sale and post closing operational support of three network affiliated stations in three markets to a minority owned media company.

It's been widely reported that the proposed transaction represents a unique framework for introducing and developing a new minority-owned entrant into broadcasting and for bringing additional local news, information and specialized programming to the market for Shreveport, Louisiana, Midland-Odessa, Texas and the Quad Cities markets. We followed that announcement with our new this week that we will again further the FCC's goal of increasing minority television ownership diversity. This will be accomplished through the sale of the CBS affiliate in Evansville, Indiana for $18.6 million to Bayou City Broadcasting which is a minority-owned media entity.

FCC data indicates that African-American ownership of television stations is exceptionally low, at only 0.7% of all television broadcast stations. So it is accurate to say that our proposed transactions, both of which are now contingent on FCC approval, will serve to very dramatically increase the number of minority-owned TV stations in the United States.

As indicated in our release, the Evansville sale also brings the overall CCA transaction into compliance with the Department of Justice requirements for approval, and will release the pending transaction from hold pending divestiture. We are very proud of the approach we're taking in leading the industry in advancing the initiative to promote minority ownership and we expect to complete these transactions later this year.

Looking back at the second-quarter results, our 16.4% rise in second quarter net revenue generated a 17.8% growth in broadcast cash flow and a 15.5% increase in the adjusted EBITDA, compounding a 48.5% rise in free cash flow. As noted in this morning's announcement, adjusted EBITDA and free cash flow were impacted by approximately $1.4 million of one time expenses related to legal and professional fees related to acquisitions and related activities.

If we normalize these costs, adjusted EBITDA and free cash flow would have posted increases of 18.8% and 50.9% respectively. During the second quarter television ad revenue inclusive of political advertising rose 6.3%, notwithstanding the allocation of inventory to political issue and pack advertisers, our core spot revenue posted an overall increase of 1.3%. There was some noise during the quarter regarding a downturn in national spot advertising, but our rise in overall core spot revenue was consistent with the expectations that we had previously set.

Of note and extending our long-term record on success of this front, core revenue growth was aided by a healthy amount in Q2 of new business. New to television ad revenue for Q2 was $7.2 million, marking a 14.3% improvement on a quarterly sequential basis and a 6.1% rise over the prior year.

On a category basis, auto remains a strong for us. Auto was up 4% in same station automotive advertising in Q2, outpacing the 2% same station increase we showed in the first quarter.

On July 1, automakers reported very strong SAAR of 16.9 million vehicles for the calendar month ended June 30. June was the strongest sales month since July 2006. The correlation of the industry's rising sales with the steady increases in broadcast TV spending cannot be overlooked. Overall, Nexstar recorded year-over-year same station increases in four of our top five categories and six of our top eight.

We continue to project GDP like growth characteristics for core ad revenue and we've structured Nexstar's platform to leverage our high-growth revenue sources, which include retran, digital media and political. Reflecting our expanded platform and presence in states with high levels of political activity, our 2014 second quarter political revenue rose by 270%, compared with the same period last year and by 12.8% over comparable 2012 second quarter levels.

While political ad spending in our markets will accelerate in the second half of 2014, Nexstar's gross revenue growth in the second quarter excluding political was a healthy 12% and reflects an impressive 40.3% rise in retransmission fee revenue and a 72.8% increase in digital media revenue. Recently renegotiated retransmission consent agreements combined with the growth of our digital publishing platform and digital agency services businesses resulted in a 47.9% increase in Nexstar's aggregate second quarter retransmission fee and digital media revenue to a number of $48.2 million.

Consistent with our revenue diversification objectives, these higher margin revenue streams accounted for 32.8% of our 2014 second quarter net revenue. That's up from 25.8% in the comparable period last year, and 22.2% in the 2012 second quarter which was part of the last political cycle.

Looking forward, with our distribution agreements covering over 40% of our subscribers up for renewal in 2014 and another 30% to be renewed in 2015, we project ongoing significant revenue growth from this source, which is currently benefiting from our late 2013 renewals. In addition, our digital media revenue growth in the second half of 2014 will benefit from the first quarter acquisition of Internet Broadcasting Systems, previously mentioned, as well as the second quarter acquisition of Enterprise Technology Group.

These strategic additions to Nexstar's existing additional digital platform and our digital agency capabilities have enabled us to expand the range of best of breed content and publishing and monetization tools that we offer to power our and our clients' digital media businesses. We've expanded now the Nexstar's digital business portfolio to a run rate of over $50 million in annual revenues and we continue to target $100 million annual revenue goal for digital media revenue within this next several years.

As shareholders, free cash flow is our number one priority as we continue to generate excellent core political distribution and digital media revenue growth. Our free cash visibility continues to remain solid and optimistic.

Tom will now provide further detail on our financials and our capital structure. I will turn the call over to Tom.

Thanks, Perry and good morning, everyone.

I'll start with a review of Nexstar's Q2 income statement and balance sheet data, after which I'll provide an update on our capital structure and details relating to the pending transactions. For the second quarter of 2014 net revenue was $146.9 million, which represented a 16.4% increase over the same period in 2013. Core revenue of $96.5 million was up 1.3% driven by a 5.6% growth in local revenue to $70.5 million.

National revenue was $26.1 million, which was a decline of 8.8% over same period in the previous year. Political revenue was $6.7 million as we transitioned into a political season, which we expect to continue to be robust in 2014 and retrans was a similar to Q1 in $35 million, which was up 40% over the previous year. Digital media revenues were $13.2 million, which represented a 72.8% increase and is inclusive of the two acquisitions that we closed earlier in 2014.

As Perry mentioned, our profitability met record highs of $58.7 million in broadcast cash flow, $49.6 million in adjusted EBITDA and $29.3 million in free cash flow. On a same station basis, net revenue was up 8.2%, core revenue was down 0.8%, local revenue was up 3% and national revenue was down 9.7%. Retransmission fees on all stations owned at least one year was up 32.6%, and digital media revenue at the station level was up 13.1%.

I will mention that core revenue on a same station basis being down in the quarter was driven by some timing issues relating to national, and if you look at our first half quarter revenue growth on a same station basis, it was up 2% which smoothes out some of those timing issues relating to the national dollars. With a focus on generating free cash flow, we remain disciplined in managing costs and addressing our capital structure leverage and cost of capital.

Second quarter station direct operating expenses net of trade expense and SG&A expenses rose 25.5% and 13.1%, respectively and include approximately $0.5 million of transaction expenses relating to the digital media acquisitions. These increases also reflect higher variable costs related to the increase in core and spot and political revenues and the operations of the existing stations.

On a same station basis, fixed costs, excluding affiliation expense, and which also excludes sales expenses, were down 1% in Q2 of 2014 versus the Q2 of 2013 as we continued to aggressively manage controllable expenses. Nexstar's second-quarter corporate expenses were $9.1 million, of which $1.9 million was non-cash corporate overhead. This compares to corporate expenses of $6.9 million a year ago, and that number included $0.5 million of non-cash stock option expense.

The increase reflects increased staffing and infrastructure to support our expanded platform, as well as the $1.4 million increase in non-cash stock comp expense. As Perry mentioned, during the quarter we incurred $700,000 of unbudgeted corporate expense relating to legal and professional fees and to alter and or restructure transactions to address the current regulatory environment.

As we mentioned in our last conference call in January, Nexstar issued options to distribute approximately 745,000 shares to 53 executives, directors and managers in the first broadly distributed incentive option grant since 2009. For the second half of 2014, we project a non-cash stock option expense to approximate $1.9 million per quarter. As such, total corporate overhead will approximate $9 million per quarter due to the anticipated additional transaction expenses as cash corporate overhead will remain approximately $6.5 to $7 million per quarter.

Turning to the balance sheet, I will review a few key items as of June 30, 2014. At that time, total leverage was 5.35 times the versus the total permitted coverage leverage covenant of 7.25 times and first lien leverage at June 30 was 2.69 times versus a 4 times covenant. Nexstar's outstanding debt as of June 30, 2014 consisted of $563 million of first lien debt and approximately $526 million of senior unsecured debt in the bonds.

During the quarter, we funded the Internet Broadcasting Systems, Enterprise Technology Group and Hoak Gray acquisitions with the $25 million draw under our term loan A and with the balance of the consideration for these transactions coming from internally generated funds. Looking forward, the commitment cost of financing for the remaining transactions is below 4% which will reduce Nexstar's weighted average cost of borrowings to approximately 5% from the current levels of approximately 5.25%.

Reflecting the refinancings over the last year and the previously mentioned ticking fees on the CCA financing commitment, total interest expense in the second quarter declined to $15.3 million from $16.9 million in the same period in 2013. Cash interest expense also fell and was $14.7 million compared to $16.1 million.

Nexstar's 2Q OpEx of $6 million compared to $5.7 million the previous year. We reiterate our guidance of 2014 budgeted CapEx of approximately $22 million, of which $2 million is for stations to be acquired in the pending transactions. We believe our results again demonstrate we are successfully managing our broadcast and digital media and M&A and integration initiatives, the top line, fixed and variable costs and the balance sheet for cash and remain focused on further actions that can enhance value.

Also later this month, Nexstar will pay the third increase dividend and our seventh dividend overall on the common stock. In summary, the free cash flow we are generating from our expanded platform is tracking consistent with our goals and our expectations. Our balance sheet capital structure and cost of capital are in great shape and we're prepared to complete both of the pending transactions while simultaneously reducing leverage throughout the remainder of 2014.

That concludes the financial review for the call and now I'll turn it back over to Perry for some closing remarks before Q&A.

Thanks very much, Tom. I will conclude with the status of our M&A activity and our recently closed and pending transactions.

Just to remind everyone, in less than three years Nexstar has doubled the number of television stations that we own or provide services to as we in mission acquired or agreed to acquire 53 television stations for a total value of approximately $863 million, all in accretive transactions.

With the acquisition in Q2 of five television stations in two markets for $33.5 million from Hoak Media, we now have four pending transactions. These transactions relate to the [27 stations] (corrected by company after the call) we are acquiring for $372 million net of $37.5 million of deposits, as well as the one station divestiture to Bayou City Broadcasting, all of which are now pending before the FCC.

As we've discussed previously, pro forma for the completion of all pending transactions, we believe Nexstar would generate free cash flow in excess of $350 million during the 2014-2015 cycle or average pro forma free cash flow of approximately $5.85 in this two-year period. Notwithstanding our confidence in completing the remaining transactions by year end, our existing operations alone are expected to generate in excess of $4.50 per share in the current 2014-2015 period absent any additional acquisition closings.

In addition, excluding the financing for the pending transactions, our free cash flow generation from existing operations will result in Nexstar's net leverage declining to a number less than four times by the end of 2014. Overall our strong free cash flow generation combined with our strength and balance sheet provides us with flexibility to acquire additional stations, additional digital media businesses all in accretive transactions, to de-lever through the year and for the ongoing return of capital to shareholders. As Tom mentioned, our seventh quarterly dividend will be paid later this month.

In summary, we're laser focused on closing, effectively integrating and extracting synergies from our remaining stations that we've agreed to acquire. And we believe that our long-term acquisition strategy as an operating discipline combined with our prudent and active management of our capital structure is our proven formula for sustained long-term growth and appreciation of shareholder value.

From the time of our IPO and the 2003-2004 cycle, at the time of our IPO, through the 2012-2013 cycle, we have grown free cash flow at a compound annual growth rate of 61.4%. While that's impressive, our forward outlook is even brighter as pro forma for the completion of the pending transactions, the compound annual growth rate from the 2003-2004 cycle to the 2014-2015 cycle would increase to a compound annual growth rate of 68.9%.

And our Nexstar's pro forma free cash flow in 2014-2015 would be expected to rise more than 110% over the recently concluded 2012-2013 cycle. With the results we've announced this morning, our record of exceptional compound annual growth of free cash flow continues with $54.7 million in the first half of 2014 which is up 71% from the $32 million in the comparable period of 2012 for the first six months when we also had the benefit then of political advertising.

The consumer appeal of our local news and our local content franchises, the reach and ability of our medium to build brands and influence consumers and deliver the messages of advertisers and candidates has never been stronger. Throughout Nexstar's history, we've managed through the perceived threats and the potential disruptors as well as regulatory changes. And with our recent progress, we remain confident in 2014-2015 and beyond. They will all be periods of record financial results for Nexstar.

As we benefit from our expanded scale, our new operating efficiencies and our synergies related to our recent and soon-to-be-completed acquisitions. In addition, Nexstar continues to actively and opportunistically identify acquisition targets and adhere to our criteria for accretion as we develop continued new, strong local platforms.

Earlier this week, as you probably have noted, Tom celebrated his five year anniversary with Nexstar. He and his finance department's work over the period have transformed and strengthened our capital structure by lowering our capital cost, improving our access to capital that we can then put to work to create value for shareholders.

In closing, I want to thank Tom, along with the remainder of our Nexstar's 3,500 employees for their commitment to the company, to our shareholders and to the local communities where we play a leading role in providing critical information news and the highest quality local programming.

I'd also like to thank you for joining us today. So now let's open the call to address your areas of specific interest. Aaron?

(Operator Instructions)

James Dix, Wedbush Securities.

Good morning, gentlemen. Just three things: two on advertising, one on retransmission. First, my understanding is you have on tap roughly 40% of your footprint for renewal this year. How many of those -- what share of those have been renewed thus far to date? Any color on how those have played out versus your expectations?

Then on the advertising side, specifically Perry, on those new to TV advertisers, is there any generalizations as to the types of advertisers you're bringing in or any playbook that seems to be working in particular for those types of advertisers coming into TV for the first time? Then finally, just on political, any comment on what you're expecting now versus what you expected earlier in the year?

James, I will take the first one and leave the advertising questions for Perry to respond to. With regard to retransmission, you're right. About 40% of our subscribers are up this year and about a quarter of those have already been done.

They've been done as you've noticed, with no service interruptions and with, I guess the way I would put it is, the continued march forward of value recognition for our programming, in a continuation above levels where we saw them done, the contracts that were done at year end 2013. So it's a march forward and I think a continuation of the trend that we have expected. With that, I will turn it over to Perry.

On your advertising questions, the new to TV advertising is obviously a core focus of development of business. Our managers are bonus set on this, our sales people are set up to earn premium commission. If you follow these calls over the past several years, you'll notice that that number always seems to be approximately 10% of our total local revenue comes from advertisers that we've brought into the business. That's a core part of our culture.

I would tell you that a lot of our growth has come at the expense in the local markets of local printed media, directories, direct mail and newspaper. That continues to be a source as their footprints collectively diminish in their ability to penetrate the local markets and our ability to reach continues to remain unparalleled. So I would just say that our folks do a good job. Every one of our 500 salespeople in the company has a new business budget to hit every month. So that's a condition of continued employment, if you will, if you're in the revenue generating engine of our company.

As it relates to political, we have been pretty consistent in saying that if you look at the compound annual growth rate of political for Nexstar, virtually for its history it's been about 20% every even year over even year. We have no reason to believe that we won't to deliver that number and more. As you can imagine third-quarter is one thing, start to build to the crescendo that will be the first six weeks of fourth quarter, but with a $1 million day yesterday in political and look for continued march to meet and exceed that guidance.

Great. Thanks very much.

Aaron Watts, Deutsche Bank

Hey, guys. Just starting with the advertising trends, the core advertising trends. If you can opine a little bit more on the cadence of how national, local feel now. It sounds like you feel like national was a timing issue first half to second half of the year. But as we think about the third quarter, would you say that there is a little bit of a snapback in national and then also on the local side, more of the same steadiness. Is that the right way to think about it?

As Tom mentioned, if you look at our first six months, because obviously we had a very good first quarter in terms of percentage growth and that was a lot driven by national. That was kind of timing of movement among the quarters. Our reported core growth was 6% and our same station growth on core revenue was 2%. I would say that Q3 at this point, looks like a continuation of the same trend.

I'm looking at product categories and auto was pacing ahead, furniture, attorneys, retail. In auto, our national billing on auto is down a single-digit on pace right now, but our local billing for local auto, which is half of the total, is pacing ahead double-digits. And that's a continuation of a trend that we've seen. I would say that third-quarter fanatically, I think will look like our first-half results in terms of core growth compounded by double-digit in digital, double-digit growth in distribution revenue as was demonstrated in the first half of the year, or even accelerated.

And then obviously political will be the x-factor, but we're very comfortable with where we are versus our third quarter political numbers. If I look across the categories, furniture will finish up in the third quarter mid-single-digit. We think that retail will be up in the low double digits. That's been a very pleasant surprise.

Medical in the low single-digits and so thematically, I don't know that we've noticed a change in the cadence. But I think we did properly highlight in first quarter and during the second quarter that you are going to need to smooth out our national for the first of six months of the year to really have a picture of what our base business looks like.

Okay. That's helpful. And then with some of the business you're bringing in, the new TV customers on the local side, can you just talk a little bit about what is drawing them to your platform? And then also, have you been able to hold your pricing steady or is pricing something, a part of what you've been able to have as a little bit variable to bring those new customers in?

The best part about new to television advertising is that they have no price expectations. You sell them on the idea, you sell them on a concept, you sell them on a program and they then determine after the campaign is over, did they get a return on their investment. So they are very insensitive to price as long as they got $20,000 in additional business for their $5000 investment in advertising and then they say let's do it again next month.

They are then no longer a new television advertiser, but we're bringing new people into the funnel every month and that's been pretty consistent at approximately, given the quarter, 8% to 10% of our total local is from organically grown advertising and that's how we stimulate our growth. So the person closest to the cash register is going to know whether the advertising worked long before the advertising agency does because they're going to know, did they get more money in the till than they had the week prior to the advertising.

So it's nice because when you discuss here's how I can help you sell 20 pickup trucks by Labor Day, great, how are we going to do it, how much is it going to cost, let's do it. There was no discussion of CPM, C-3, anything. It's like if I give you this money, I want to see a return on that money and if you do, we'll do business again.

I apologize if you talked about this, but how many of those new to television customers that you work with for the first time stick around for a second campaign?

I don't know if we have statistics on that. I can look into that. I just tell you that new business development is a lifeblood of this business and for us it's been a very important emphasis. You can go back two or three years and we report on new business development every quarter in our calls.

I don't know if we've done a longitudinal study on that. Our return rate of advertisers is probably overall, maybe 20% to 25%. People merge, buy, retire, go our of business, whatever, but that's at the local level. We've not seen that rate necessarily trend up or down. But I don't know we've ever tracked it as acutely as you've asked the question.

Okay. Last one, in Tom's direction, funding requirements left to help close whatever pending transactions you still have open; how should we think about that the rest of the year and that's it for me. Thanks.

The good news is they're decreasing by the day as we generate pretty substantial free cash flow. As I mentioned before, we accomplished $60 million of acquisitions in the second quarter and only drew $25 million down under our facility. The good news is with the announced divestiture of WEVV in Evansville, that's approximately $18.6 million reduced funding needs.

I haven't done a study of it in the last week or so, but I would say our funding needs are probably less than $30 million if you include that divestiture. There may be some timing issues around that slightly, but they go down by the day and as Perry mentioned, we're really starting to hit our stride from political revenue and that's a free cash flow boon for us.

Aaron, to put a fine point on it, if these transactions end up closing in December, it's possible that there would be no additional funding requirement. There could be, as Tom said, some timing issues and it also depends what else might come out the end of the pipeline, that's in the pipeline that we're working on right now. But there is a possibility there would be no -- that we could fund everything with existing commitments and cash on hand.

Okay. Thanks. Appreciate the time.

Michael Kupinski, Noble Financial.

Thank you for taking the question. Congratulations on your record second quarter. A couple of questions just fleshing out the retail environment, the advertising environment specifically. A number of broadcasters have indicated that they are seeing weakness in retail on a local level at this point. It seems like you are bucking that trend right now.

I was wondering from your perspective, is it more a bigger dynamic at work for you than others, particularly that you are taking share from newspapers or other TV stations or do you think that this just happens to be a better market that you're in? Can you give us a flavor of where, why you are seeing such strong retail whereas others are seeing some weakness?

I would think two things. One, if you look at our core revenue composition, it continues to be approximately 75% from local advertisers, 25% from national advertisers. Local is performing better than national for us and for others. So proportionately, we may able to show better metrics there. In second quarter, our retail was driven by increased spending in the sub-categories of clothing and sporting goods and health and beauty.

And we showed in the second quarter a 12% increase over the prior-year in the retail category. I think it's somewhat situational. I will use this opportunity, as I did in the first quarter, to compliment our sales force on taking care of business at the local market level. I think all of those elements go into baking the cake. It's a focus on business development. It's a being close to local advertisers and less dependent on national and I think all of those things probably would go into the outcome that we have delivered.

Perry, I know that you have a little bit of a smaller market focus, but were there any regional differences in terms of advertising or any particular differences between maybe some of your larger markets versus some of your smaller markets?

We look at it by region. We look at it by network affiliation. We look at it by market size and I would tell you that there was no significant difference. There might be pockets of outliers in terms of markets that for whatever reason had turned in a great first six months or whatever, but there's nothing that I would say would be statistically or meaningfully different. When you have a portfolio right now of 80 stations, that's pretty much proxy for the middle part of the country in which we concentrate our operations.

But no, upstate New York performed well, Pennsylvania, the Midwest. If anything, West Texas is probably struggling with the drought to some extent, but they also have shale oil that has provided a counterbalance to the ag economy there. As you move into Salt Lake and Billings and further west, things have been performing above our expectations. And those economies are generally humming.

In terms of the FCC, I know that you guys have taken some steps on diversity programs and things like that, that are near and dear to the FCC's heart. I was just wondering if you can frame for me the current relations that you have with the FCC and obviously, you have some pending acquisitions here. Just wondering if the relationship is kind of improved from earlier in the year when some of these initiatives were, that the FCC's rule making and things like that, that they announced.

Let me just suffice it to say that we are in constant touch with the FCC. Our attorneys were visiting there yesterday and talking about our pending transactions, providing additional information that was requested. So we are attempting to be as user-friendly to make sure they have all the information that they need to process the transactions.

Right now the only transactions that are pending are for Nexstar license applications and the license applications for Marshall Broadcasting, which is the minority controlled entity that we are attempting to incubate and help to get into an ownership position. We think those applications stand on their own merits and will also be adjudicated in the public interest and we think that that will bode well for that which we had put forward.

Okay. Perfect. Thanks for taking the questions.

Davis Hebert, Wells Fargo Securities.

Good morning, Perry, Tom. Just a few questions from me. Tom, a clarification on your retrans comment. You said that a quarter of the 40% of the subs have been done. Can you clarify, is that 10% of your subs or 25% of your subs?

10%.

Okay. Got it. And then you gave the leverage metrics and then 3.8 for 2014. Can you give us an estimate on how you're looking at it from a two-year average basis?

I don't have that information in front of me, Davis. I will have to go back and do some quick math and get back to you after the call.

Okay. That is fine. And then another leverage question. How should we think about the guarantee of the Marshall debt? Is it leveraging, is it leverage neutral, any thoughts there?

It's part of the $370 odd million of funding requirements. It would be as currently structured, categorized as a VIE. It would be handled similarly to mission and consolidated in our financial statement as well as our reporting for compliance purposes.

Okay. So you would incur the debt or you would keep the debt on the balance sheet and get credit for the cash flow as well then?

Correct.

Okay. That helps. Then on the M&A front, we've seen a lot of get deals get stuck in DC and it seems like things are loosening up now that there's been swaps and one-off station sales. Perry, do you believe we have or you have a reasonable playbook now to know how to get deals through DC?

Well, we'll tell you as soon as we know for sure. I think we've put forth a minority applicant that will allow us to clear these two large transactions we have pending that meets the commission's requirements for competition localism and diversity. The combination of Marshall and Nexstar in these markets will create a 100% owned minority entity, not one that the minority has a carried interest, provided he does well with the venture capital partner but 100% equity ownership by the minority.

And we'll create an additional 40 hours a week of local programming that seems to meet all of the commission's goals. Time will tell. We think that if that doesn't qualify for a waiver, I'm not sure anything will. Having said that, we're also looking at transactions where Nexstar is looking at an opportunity in a market where it can buy a second station because there are enough voices that would allow that.

And we're looking at other transactions where they would be standalone acquisitions that wouldn't require any additional FCC processing. I think that we are trying to determine the new normal. I think we feel very good about our prospects of moving forward here. And again, on other regular way transactions and certainly digital transactions, if they're accretive and they grow the asset base and they make a sense of from some of the parts perspective, then we will continue to put our energies in those areas as well.

Okay. That is helpful. Last question, it's been a while since we talked about news ratings and it's a constant debate among investors given the fragment of viewership we're seeing with over-the-top and Netflix et cetera. Just curious to know how are your news ratings trending overall year-over-year?

We don't subscribe to Nielsen so I can't tell you.

Okay. Got it.

I can tell you that our news revenues continue to grow so that's my proxy. Those that it do evaluate our news product based on ratings are collectively investing more money than they did a year ago. So I think that my proxy would say we're doing just fine. Obviously with our newly acquired stations where we've made some substantial investments in Fresno and Memphis and Salt Lake City and Syracuse and places like that, we do know our market shares in those markets have all collectively risen and in some cases, pretty dramatically over what those stations were doing prior to when we acquired them.

So that's my proxy and I think that our news product is relevant and I think our news ratings therefore would be holding up pretty well. And again, compared to what, compared to the newspaper, compared to some unfinanced community blog or whatever. We are becoming in our markets, Syracuse is a perfect example, where our TV station there by press reports, is the number one rated local news source in town.

The local newspaper once, not because we announced, but subsequent to our announcement of acquiring the station decided that they were going to cut back publication to four days a week. We are the quote news source of record seven days a week and by the way, we're also open for business seven days a week. I think that cyclical rotation of print, direct mail, directories, local print and there's really only two national print products so everything else is -- print is really a local story.

I think that continued rotation and that secular change, I believe, I don't think it's completely done yet. I think we will continue to benefit from that and that's another reason why we've expanded the local news offerings in our marketplaces. We know produce in excess of 68,000 hours a year of local news which is in excess of 1,300 a week. And that's before we include the local news and the increased local news of our pending acquisitions. So it is our number one revenue source as a company from an advertising perspective and obviously where we spend a lot of time.

Okay. Great. Thanks a lot.

Edward Atorino, Benchmark.

Hello. You seeing much mobile? It's one of the great things that happened. The NAB thought mobile would be a huge category by now and is it starting to show up here and there, mobile advertising?

Mobile only in the telecom category at this point. Telecom for us is not a top 10 category at this point. So I would say it's not shown up in any major way. I will tell you that on our digital platforms, page views originating from mobile devices make up almost 40% of our page views now. Our mobile revenue on our digital platform has grown dramatically, but it still is less than 15% of our revenue on our mobile platform. We, like everybody else are kind of running down the street trying to monetize these viewer adoption trends and therefore, we see that as a growth category on the digital side.

On healthcare, are you seeing it's just general healthcare or is there something related to Obama-care that might be bumping up the numbers and is there upside in that category looking forward?

What we are not seeing is the ACHA money, AHCA money that was in history. Most of our category gain in second-quarter just came from local hospitals and clinics and dentists that were perhaps advertising for newly insured customers. If you read the Journal the other day, there is also another side to that, that volumes have gone up and people that are now insured are seeking more treatments and services. I think again for us, the medical category growth was a local story.

Okay. Terrific quarter. Thanks much. Goodbye.

Tracy young, Evercore.

Hello. A few questions, if I could. The first question, your operating expenses came in lower than I expected. Can you give us any guidance on a same station basis for the third quarter? And one for modeling purposes, when should we expect CCA to close now? Thank you. (Inaudible) Thanks.

With regard to third-quarter, I think we expect moderate to no growth on a same station basis. And as you know, we don't give public guidance as it relates to any of our financial categories. I will say though, that we've been very pleased with the containment efforts from an expense perspective and think that will be modest going forward.

I would say the only thing that will really change is on Q3 we'll have a full quarter of the Hoak-Gray station operations which will increase obviously both revenue and expenses. So it won't be a true continuation on an apples to apples basis of Q2, but a slight growth from that perspective.

Okay.

I think in terms of CCA closing, because the Bayou City application was just put on file at the FCC, that may push everything out for the remainder of CCA, because it will all have to close simultaneously, into late November or early December. We think it's somewhere between a November 30 and December 31 kind of a closing now. There's a possibility things could close ahead of that but because this other application just came in at the tail end to complete the package, that it will most likely be a late November to December event for closing our pending transactions.

Okay. Perfect. Thank you.

Thanks, Tracy.

(Operator Instructions)

Edward Atorino, Benchmark.

With all the acquisitions that have happened, have you ever had a situation where one of the other big broadcasters is buying something in a market where you have a station? If that happens, does that sort of disrupt things, causing you to do something different than you used to do, or hasn't it happened?

You have to define big. We compete against Gannett and Hearst and other folks like that already. I think that we're a lot like them, they're a lot like us. We don't compete, with the exception of Memphis, against a Fox O&O and that's only temporary at this point because of their swap with Cox. So we're not really against any O&Os except in Fresno and again, our NBC, CBS duopoly there is doing very well.

Our game plan is to define what we're doing and not be defined by what other people are doing. Again, I stick to it as being a local service business, local content, help local businesses ring the cash register. That's really what we are there to do. So I wouldn't say we had to change our game plan because of the competitive landscape, although we calibrate game plan against the competitive landscape literally on a quarterly and annual basis.

Thanks a lot.

Marci Ryvicker, Wells Fargo Securities.

This is actually John stepping in for Marci. I apologize, I might have missed it. You said national for Q2 on a same station basis was down 9.7% and what was core?

The core was down 0.8% on the second quarter. Core for the first half was up 2%. National for the first half was up 3.1 -- I'm sorry, local was up 3.1% and national for the first half was down 0.8%.

Got it. Okay. Thank you so much. That's it for me.

With no other questions in the queue, I would like to turn the call back over to Mr. Perry Sook for any closing remarks.

All right, thank you all for joining us today. We appreciate your time and your interest in Nexstar. Obviously, we are available off-line if there are follow-up items. Enjoy the rest of your month of August and summer and we'll look forward to talking to you in the fall.

And this concludes today's conference. We think you for your participation.